DUBLIN - Banks in Scandinavia and other parts of Europe, where Internet banking has taken off much faster than in the United States, say they are beginning to see glimmers of profitability from their online offerings.
The news has heartened other European banks and prompted some to take bolder measures - like closing branches or whittling branch staff - to shift internal resources toward electronic banking.
Banks in the United States and elsewhere worried that online banking would turn out to be a money-loser. Some thought that like telephone banking and automated teller machines it might disappoint hopes for big cost savings.
But some Scandinavian banks are now attributing some profits to Internet strategies, which include heavy promotion of Web banking, branch closings, and staff cuts.
At Svenska Handelsbanken in Stockholm, Scandinavia's largest bank, Internet banking "will probably be profitable this year," says executive vice president Lars O. Gronstedt.
The $120 billion-asset bank says it is beginning to realize cost savings from Internet banking, whose popularity was behind a decision to cut 235 branch workers, or 5% of its work force, last year. The cuts will continue this year.
And MeritaNordbanken in Finland says it expects Internet banking to add $250 million to $300 million to annual earnings within three years, split evenly between cost-cutting and revenue increases.
Compared with U.S. banks, those in Europe have made a "belated but aggressive reaction" to the Internet, said Shane Nolan, co-chief of equity research at Merrion Capital Ltd., a Dublin brokerage and research firm. In just the last few weeks "they are realizing the potential for cost savings, particularly on the business banking side."
Bank of Ireland is running a pilot project at three branches to funnel more business customers to Internet banking. First the bank routed all calls from business customers to a single person in each branch who tallied the callers' queries - and found that two-thirds were calling about routine transactions. Then the bank began encouraging those callers to use its Business Online Internet service, where large and small businesses can view accounts, complete fund transfers, and make international payments.
As a result, Mr. Nolan said, 70% of business customers' telephone calls to those three branches have been eliminated, and many of the people who once fielded calls have been reaassigned. "You won't see many branches close," he said, "but you'll see them reconfigured."
Mr. Gronstedt of Svenska Handelsbanken said that 80% of its transactions are already automated, and that this should grow to 95%, "in large part due to how the branches are configured." About 20% to 25% of corporate customers' transactions and 15% to 20% of retail customers' transactions go through the Internet.
Within the next month, Handelsbanken will launch a separate remote banking service on telephones that incorporate the Wireless Application Protocol, a worldwide standard for providing Internet communications on mobile devices.
Handelsbanken still has a branch-centered strategy. Its approach was to give each of its 500 branches its own Web site, where customers can get information but cannot carry out transactions. On top of that, the bank set up five Web sites - two for Swedish customers, one for the Norse, one for the Finnish, and one for the Danish - where customers can pay bills, apply for mortgages, buy life insurance, and trade stocks. The bank says 260,000 customers are doing transactions on these five sites.
This year Handelsbanken will also introduce banking services - physical and virtual - to retail customers in the United Kingdom. The bank now serves British retail customers through branches in Birmingham and Manchester, and plans to let consumers use those branches and a new Web service. "We'll offer U.K. customers a call center, as well as credit cards and mortgages on the Internet," said Mr. Gronstedt said.
Ultimately, all routine Svenska Handelsbanken transactions will be self-service, and do-able on the Internet and over WAP phones, he said. "Branches will do their own local marketing, offer corporate services, do the credit [scoring] process, and manage their own Web pages."
In the merger between Deutsche Bank and Dresdner Bank, executives are looking to the Internet to save money. The number of retail branches will probably be scaled down, in a "bricks and clicks" approach.
The retail businesses of the two German banks will be merged into Bank 24, Deutsche Bank's direct bank, which is likely to be taken public within three years.
"Deutsche Bank is compelled to figure out how to leverage its technology investments and to improve its delivery - just like the domestic sparkassen [thrifts], Citigroup, and other large banks in the world," said Suzan Nolan, president of Blue Sky International Marketing Inc., an Internet marketing firm in Paris that specializes in financial services. "Deutsche Bank's competitive global concept is to create country branches on the Internet."
Ms. Nolan said it is a good idea for Deutsche Bank to shut some branches. On its home front it has been competing increasingly with the domestic sparkassen, "which have undertaken important Internet initiatives to better serve customers," she said. These include offering customers on-line banking and brokerage, bill payment, funds transfer and the ability to check account balances.
With this in mind, Deutsche Bank has already set up Bank 24 and its on-line discount broker, Brokerage 24, in Germany. It has also launched Deutsche Bank Espana in Spain and is setting up an Internet bank in Italy.
But Ms. Nolan said Deutsche Bank can still "get smarter and far more efficient in its handling of resources - both physically and technologically."
According to Merrion Capital, Bank 24 has 650,000 on-line customers and is aiming for nearly two million by 2002. Half are expected to be new customers to Deutsche Bank. Brokerage 24 is also expected to grow its customer base to 250,000 this year, Merrion said in a report last month on Internet banking in Europe.
In the summer, the report says, Deutsche will launch a portal called Moneyshelf.com. This business will offer financial products and will aim to attract 400,000 customers within a year and one million over the next few years. After launching it in Germany, Deutsche plans to push for customers across Europe in partnership with the Spanish bank La Caixa.
Merrion Capital predicts that through 2002, Internet use on personal computers will grow two times faster in Europe than in the United States. It predicts that growth of on-line banking in Europe will be enhanced by the use of third generation mobile networks and WAP-enabled mobile handsets, of which there should be about 300 million in use by 2002. 
